Early Friday morning the story surfaced that Apple, the company behind the infamous iPhone as everyone should know, has come out saying they'd like to purchase Beats Electronics from founders Jimmy Iovine and Dr. Dre. When this deal broke the news it sent a 'shock & awe' around every major news headline. As we all know, Apple is no stranger to paying the big bucks for companies they believe will help them in the long run, but this is the biggest yet. The largest Apple has paid for a company was back in '97, the $400 million deal with NeXT Computer systems which would ultimately bring Jobs' back to Apple. With $400 million being the largest, this $3.2 Billion would almost be EIGHT times as much as that deal.
Given Apple's approach to this whole deal has analysts at an awe. Due to the fact that Apple is just willingly opening their pocket to a company that wasn't seemingly opening themselves to offers or have strategic or technological advantages. One analyst from Forrester Research says: "I cannot do the math on the offer, Nothing that I can compute adds up to $3 billion." Which asks the main question, why would Apple start at such a high price for this company? Do they see something the rest of us don't?
Founded in 2008 by Hip-hop icon Dr. Dre and Geffen A&M Chairman Jimmy Iovine, Beats also launched a music streaming service in early January this year. They charge $10 a month to access to it's song library online. They also have a deal with AT&T offering a family plan for $15 a month. No disclosed amount of subscribers, but adds to the deal being made.
Analysts are speculating that this said streaming service is what may have drew Apple into purchasing Beats. As many of you may know Apple revamped the music industry in the last decade with the introduction of iPod and iTunes Store. Digital downloads being at 40% of music industry revenue, but with a hard second being Streaming at 28%. According to Nielsen SoundScan, 2014 sales of digital tracks as of May 4 are down 12% from a year earlier.
In 2009 Apple bought out LaLa, a cloud-music service, for a reported $17 million. Last year Apple introduced the launch of itunes Radio, a free, ad supported streaming service similar to that of Pandora. With downloads on the decline and streaming on the rise, Apple must be trying to rethink it's approach to the music industry. Apple "must have felt they needed to do something dramatic," said one Wedbrush Securities analyst.
Adding Beats to the Apple franchise would be great for image. Buying this premium product and placing it under it's own premium image would stand out. Yes, Beats products are already offered at most Apple stores, for an endorsement of their quality. Due to the fact that Apple tries to stay out of the limelight with making gadgets because they tend to fall lower than others.